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October 03, 2023
Africa-news (597)
Economists and analysts are predicting a 50 basis point hike to interest rates in November, following two successive hikes of 75bps in July and September.
BNP Paribas SA hired Barclays Plc to sell South African financial-services business RCS, which operates in Namibia, Botswana and South Africa as part of a wider scaling back on the continent, according to people familiar with the matter.
The Zambian kwacha is now stronger than the South African rand.
Eskom on Friday signed land lease agreements with four independent power producers for the commercial lease and use of land at Majuba and Tutuka power stations.
British Prime Minister Liz Truss on Friday dismissed her finance minister, forcing Kwasi Kwarteng to carry the can for turmoil sparked by her right-wing economic platform as restive Conservatives plotted her own demise.
A growing number of African countries has introduced financial market policies related to environmental, social or governance issues, a study said on Thursday, as a global push to invest more sustainably gathers pace.
Hydrogen is used mainly to make chemicals such as fertiliser, and in oil refineries. Most hydrogen in the world today is made from natural gas or coal – methods associated with large carbon dioxide emissions.
Top global diamond producer De Beers has announced oil and energy industry executive Al Cook as the new CEO of the group, taking over from Bruce Cleaver who will move into the role of De Beers co-chairperson.
A large cut in OPEC+ oil supply is creating uncertainty for oil traders, causing a spike in global oil prices. Analysts anticipate an accelerated move to US$100 a barrel which, when combined with a strengthening dollar and weakening rand, spells bad news for local fuel prices.
The biggest cut to OPEC+ supply since the pandemic has added another element of uncertainty for oil traders weighing the outlook for Chinese demand and a potential energy-supply squeeze during winter in the northern hemisphere.
The cut will likely lead to higher costs for crude imports as the dollar climbs and fuel consumption gains over winter, said Kim Woo Kyung, a spokesperson for South Korean oil refiner SK Innovation Co.
There’s also the possibility of demand falling due to a global economic slowdown, she said, highlighting the competing factors the market needs to juggle.
Oil and commodity markets have been whipsawed this year by the fallout from Russia’s invasion of Ukraine and escalating concerns over a slowdown. A rising dollar and tightening monetary policy have exacerbated the volatility.
Up until last week, demand in China – the world’s top crude importer – was uncertain, although there’s been recent optimism about its near-term consumption.
The reduction by OPEC+ is a major setback for big oil-guzzling economies such as India, said refining and government officials from the South Asian nation, who asked not to be named as they aren’t authorized to speak publicly. The easing of sanctions on Venezuela and Iran, however, could go a long way in mitigating any acute tightness in the global market, they added.
Complicating the outlook further is new European Union sanctions on Russia, the first stage of which are set to take effect on 5 December. Traders said they were keenly watching what refiners in the EU will do to replace their staple diet of Russian Urals crude, and where they will turn to for replacement cargoes. European processors tend to procure oil on a very prompt basis, they added.
Uncertainties around the flow of oil following the sanctions have been tough to model, Giovanni Serio, global head of research at Vitol Group, said last week.
Saudi Prices
Part of that alternative supply to Europe is likely to come from West Africa, according to traders specializing in the region’s crude. Europe is expected to see fewer barrels flowing from the Middle East because of the cuts, they said. West Africa’s sales to Asian oil giants like Indian Oil Corp. and China’s Unipec may also increase, they added.
Still, traders in Asia said they were relieved that Saudi Arabia kept prices for November shipments to Asia steady. Refiners and traders had predicted a hike.
While OPEC+ pledged to cut daily output by 2 million barrels from November, Citigroup Inc. estimates curbs may equate to 1.1 million to 1.2 million barrels a day, which would slow down the replenishment of still-low inventories.-bustech
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Global foreign-currency reserves are falling at the fastest pace on record, as central banks from India to the Czech Republic intervene to support their currencies.
Elon Musk revived a bid to buy for Twitter at the original price of $54.20 a share, backtracking on his effort to quit the deal and potentially avoiding a contentious courtroom fight.
African startups attracted a record US$3.5 billion (R62 billion) in venture capital investment in the first half of this year, bucking a global decline in dealmaking linked to worldwide economic turmoil, data released by an industry group showed on Tuesday.
On Monday, the pound sank to a record low against the United States dollar as investors rushed to sell the currency and government bonds in a major vote of no confidence in new Prime Minister Liz Truss’s economic plans, which include large tax cuts funded by steep increases in government borrowing.
The pound at one point in Asian trading sank as low as $1.0327, surpassing the previous record low reached in 1985, before making back some of its value.
The rand was last trading at R19.43 against the pound, from around R21.20 at the start of 2022.
The price of 5-year UK bonds — through which investors loan money to the government in return for interest — recorded the sharpest fall since at least 1991.
Under Chancellor of the Exchequer Kwasi Kwarteng’s “mini budget” announced on Friday, the UK is proposing the biggest tax cuts in 50 years, including abolishing the 45 percent tax rate on incomes over 150 000 pounds (R2.9 million).
The tax cuts, along with a plan to support household’s rising energy bills, will require the government to borrow an extra 72 billion pounds (R1.4 trillion) in the next six months alone.
As with other goods and services, the value of most of the world’s major currencies operates on the principle of supply and demand.
When demand for a particular currency is high, the price goes up and vice versa.
The pound’s plummeting value indicates that investors are concerned about the UK’s ability to manage so much extra debt, especially as rising interest rates make borrowing much more costly.
On Monday, Raphael Bostic, a top official at the US Fed, warned that the tax overhaul had “really increased uncertainty” and raised the risk of a global recession.
“Confidence in the UK economy is low right now,” Pao-Lin Tien, an assistant professor of economics at George Washington University, told Al Jazeera.
“The new prime minister’s economic policy of lowering taxes on the wealthy is not too popular, and the consensus is that it will not work in stimulating the economy.”
While the UK’s tax plans were the initial trigger of the pound’s freefall, economists say that investors’ confidence in the British economy has been waning for some time due to developments such as Brexit.
“The British pound has long been suffering for political decisions in the UK,” Alexander Tziamalis, a senior economics lecturer at Sheffield Hallam University, told Al Jazeera.
“It has been hit by Brexit and is also facing the prospect of a second Scottish independence referendum and a potential trade war with the EU over the Northern Ireland protocol.”
What can the UK do to stop the pound’s decline?
The main tool available to prop up the pound, or any other falling currency, is to raise interest rates in order to attract foreign investors with better yields.
On Monday, Andrew Bailey, the governor of the Bank of England, said the central bank would not hesitate to lift rates as necessary.
But despite calls from some economists for emergency action, the UK’s central bank opted against an unscheduled rate hike, sending the pound down to $1.06 after it made some earlier gains.
“Both the Bank of England and Bank of Japan can decide to raise rates to match the rising US interest rates,” said Tien, the professor at George Washington University.
“This will help, but if investors don’t see aggressive enough actions from BoE or BoJ — so not just an increase in rates, but a larger than expected increase in rates — it won’t help much with the currency values. The issue with aggressively large interest rate hikes is that it’s likely to push the economy into a recession, which no one wants to see.”
Governments can also intervene by buying up their own currency to prop up its value, although this is frowned on by many economies and risks invoking trade penalties.
“The pound and yen are officially floating exchange rates, governments should not and do not often intervene in the forex market,” Tien said.
Why is the US dollar so strong?
The strength of the US dollar, which has been on an upward trajectory since mid-2021 and last month hit a 20-year high against six major currencies, has two main drivers.
The first is confidence in the US economy relative to its peers.
Much in the same way a weakening currency reflects declining investor confidence in a country’s economy, a strengthening currency points to a vote of confidence in an economy’s fundamentals.
While the US economy is battling high inflation and flagging growth, the dollar has long been seen by investors as a reliable bet.
“The US dollar has always been seen as a safe haven for investors because the US is such a strong and large economy, so if there is global uncertainty, it’s always a safe bet to hold US dollars because it retains value well,” Tien said.
“So with the war in Ukraine, economic and political problems in Europe, high inflation, etc, it is not surprising investors are turning to the US dollar.”
Marc Chandler, chief market strategist at financial consultancy Bannockburn Global Forex, said that the US seemed like a safe bet to investors in light of global events even if it recorded negative growth during the last two quarters.
“The US biggest rivals have shot themselves in the foot. Here I am thinking of Russia’s invasion of Ukraine and China’s zero-Covid policy that has disrupted growth,” Chandler told Al Jazeera.
“The US allies are also having serious struggles. Japan is the only G10 country not to raise interest rates. China actually cut rates recently. Europe is on the verge of a recession and the UK’s new government has stirred crisis talk with its fiscal stimulus adding to its current account deficit.”
The second driver of the dollar’s rise is interest rate hikes by the US Federal Reserve, which has been raising the cost of borrowing in an effort to tame soaring inflation.
With depositors at US banks benefitting from interest rates, investors have been further encouraged to swap other currencies for dollars, pushing up the price of the greenback.
“Of course, central banks in other jurisdictions such as the UK have also been raising interest rates, and the eurozone is planning to do likewise. But they are not acting as aggressively as the US,” said Tziamalis, the economics lecturer at Sheffield Hallam University.
“Meanwhile Japan is not tightening at all, so the net result is still greater overseas demand for greenbacks.”
Who are the winners and losers?
For US consumers, a stronger dollar means cheaper imported goods in the shops and more affordable holidays abroad.
For everyone else, the picture is less rosy.-fin24